China, the Communist Party announces reforms to restart growth and reduce inequalities.

China, the Communist Party announces reforms to restart growth and reduce inequalities. The legitimacy of the ruling class is at stake, and these reforms could significantly impact China’s global standing, particularly in the context of its relationship with the West and its ambition to become a global superpower.

“Reforms”, “Chinese-style modernization”, “new productive forces”, and “social justice” are some of the keywords contained in the report of the third plenum of the Communist Party, the plenary meeting that brings together the members of the Central Committee every five years, one of the most important decision-making bodies, to dictate the programmatic political lines for the years to come.

Those words have been part of the Chinese Communist Party’s rhetoric since 1978, when Deng Xiaoping launched his economic reforms. However, those words are also the key to restarting economic growth (down to 4.7%) and ferrying China through the elements of an increasingly hostile international context. With the awareness that without a more sustainable development model, the Asian giant not only risks losing the competition for global leadership.

Also, a ruling class’s social stability and political legitimacy are at stake. Until now, the Communist Party have been able to compensate for the growing control over the population with the ability to ensure economic well-being.

However, it must be remembered that China has an intrinsic need to maintain its sustained and constant economic growth over time. The ruling class’s social stability and political legitimacy are at stake. The Communist Party, until now, has been able to compensate for the growing control over the population with the ability to ensure economic well-being. A thriving economy is also a means to sweep under the carpet the structural problems of the Chinese economy, such as the fragility of the banking system, the inflated real estate market, the unfair state subsidies for goods intended for export and the overwhelming deterioration of the natural environment.

Reforms, we were saying. The report, which is currently very vague, anticipates the introduction of new measures, which will be confirmed in more detail in the coming days. As per tradition, the third plenum coincides with the announcement of critical economic measures. In 1978, Deng Xiaoping announced the open-door policy. In 1993, his successor, Jiang Zemin, formalized the adoption of “a socialist market economy”. In 2013, as soon as he assumed the presidency, Xi spoke of a “decisive role of the market in the allocation of resources”. Since then, however, those promises have only been partially kept.

On the contrary, the Party-State has returned to driving the economic machine. At the same time, Xi took the steering wheel away from the prime minister, who had held the economic portfolio since the 1990s. The “reforms” approved this week are unlikely to reverse that trend towards centralization. However, these are actually reforms, although perhaps not the ones hoped for by the West.

Barring a retreat in state power, new measures still leave room for greater private sector involvement, sacrificed in the last four years for the benefit of growing government control over strategic sectors or those with a robust social impact. “We must firmly consolidate and develop the public economy, firmly encourage, support and guide the development of the non-public economy, ensure that all types of proprietary economies have equal utilization of factors of production in accordance with the law, participate equally in the market competition,” the report reads. References also appear to the need to stabilize the real estate market, contain local government debt and reduce social inequalities, especially between urban and rural areas. The latter aims to relaunch domestic consumption, invert deflation, and reduce the role of exports. This fastest-growing sector is too exposed to international uncertainties.

All with an ambitious aim: to transform China into a “medium-developed country” by 2035. This means increasing the GDP per capita from 12,600 dollars to over 20,000 dollars. According to experts, this objective can only be achieved by maintaining growth rates of around 5% per year. Only in this way will the Asian giant be able to avoid the so-called middle-income trap, replicating the success of South Korea. To achieve this, however, it is necessary to increase productivity through innovation to compensate for the demographic contraction and the decline in capital, especially in collapsed foreign investments in April by 27.9% on an annual basis due to the domestic political climate as well as tensions with the United States and the European Union. In Beijing’s plans, growth will be driven by the “new productive forces”, i.e. high technology, especially that linked to the ecological transition, which will play a crucial role in China’s future growth. Also, to reduce dependence on Western suppliers, who are increasingly less willing to share know-how with a “systemic rival”. “To promote Chinese-style modernization, we must adhere to independence, self-confidence and self-strengthening, holding the destiny of development and progress firmly in our hands,” explained an article that appeared a few days ago in the Qiushi magazine of Central Committee of the Communist Party of China. The final goal is the “rebirth of the Chinese nation by 2049”, i.e. for the centenary of the People’s Republic. This highly symbolic mission has a dual purpose: first, to make China a global superpower, repairing the shame suffered at the hands of the West during the “century of humiliation” between the end of the 19th century and the beginning of the 20th century, a period that profoundly influenced China’s modern history and its current policies. “As the world is going through profound changes, the international community can see what a big deal.

“The current situation can offer coherence and stability, and which one is more unpredictable and full of risks”, commented a Chinese academic in the Global Times in the aftermath of the attack against Donald Trump. Secondly, raising the country’s status would also ensure that its president has a place in history: “Xi Jinping the reformer”, wrote the state news agency Xinhua a few days ago, attributing to the leader over 2000 “reform measures” in the last ten years: from the defeat of absolute poverty to the development of rural areas, through the repression of corruption and the fight against pollution. All topics are also mentioned in the Central Committee report.

Completing the mission won’t be easy. According to Mobo Gao, professor of Chinese studies at the University of Adelaide and exponent of the Chinese “new left”, “there is a lack of coherent measures to move forward in the current context of economic slowdown and international competition”. Xi – explains the expert – “wants reforms but does not want the system to collapse as happened in the Soviet Union. The idea is to proceed according to the xinli houpo (先立后破) principle. “Instead of brutally destroying the old to establish the new, it is less painful to gradually establish the new to replace the old”, clarifies Gao who highlights two important measures already evident: “A sort of collective economy to be developed in rural China. In other words, large-scale privatization of rural land is off the agenda. The other is allocating more resources for high-tech and new-tech industries. Party and government officials at all levels have now been responsible for innovation and development of new technologies.”

External variables contribute to complicating the picture. The weakness of the domestic market still makes it essential to rely on international demand. But the “new productive forces” rhyme with state subsidies and industrial overcapacity in America and Europe. That is unfair competition. On Wednesday, the World Trade Organization, announcing the first review of Beijing’s trade policies since 2021, criticized “China’s lack of transparency”, which “does not allow for a clear overall picture” of the incentives granted to domestic companies. Especially regarding “aluminium, electric vehicles, glass, shipbuilding, semiconductors or steel”.

Expected for the autumn of 2023, the plenum was delayed by several months, perhaps due to internal disagreements. Faced with the difficulties of the economic and geopolitical context, only some agree on the path to follow. “The internal resistance is evident,” Gao explains, “A few years ago Xi had sternly warned that “houses are built for living, not for speculation”, but without great impact. The real estate bubble continued to inflate. The intellectual elite, especially those influenced by the West, are hostile to Xi. Talk of imposing a real estate tax has been going on for years but has not materialized. The other area is healthcare reform. Very tough and so tough that the crackdown on corruption in the sector stopped abruptly, I think last year,” says the expert.

Then, it remains to clean up the party and army ranks. “The idea of a public register of government officials’ personal and family assets has been circulating for some time. The issue was raised almost every time the National People’s Congress was convened. But they failed to implement it,” says Gao. Since last year, three members of the Central Committee have been investigated for corruption, including former Defence Minister Li Shangfu. “The modernization of national defence and the military is an important part of China-style modernization,” the report confirms. However, no charges have been filed for former Foreign Minister Qin Gang, who, according to what was announced at the end of the plenum has “submitted his resignation” and is no longer a member of the Central Committee. Considered very close to Xi, the official left the ministry last July for “health reasons”.